What Is a Reverse Mortgage? What Seniors Should and Should Not Expect From These Loans

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According to researchers at the center for retirement explore at Boston College, in upcoming years, reverse mortgages will be an foremost tool used by baby boomers to help them afford expenses during retirement. The continued popularity of these loans leaves many seniors asking, "What is a reverse mortgage, and what can it do for me?"

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What Is a Reverse Mortgage? What to Expect From a Loan

Of the different types of reverse mortgages, the great majority of borrowers select federally-insured Home Equity Conversion Mortgages, or Hecms. With an Hecm, seniors 62 and older are allowed to borrow a part of their home equity and defer repayment until they pass away, move or settle to sell the home.

The number that seniors can borrow will depend on the value of their home, accumulated equity, their interest rate, the loan stock they select and their age. According to data compiled by the center for retirement Research, a 65-year-old borrower who has 0,000 worth of equity would be eligible to receive around ,000, or 49% of their equity, based on today's interest rates. That frame includes slightly less than ,000 worth of fees, along with end costs, the upfront Mip and servicing fees.

If the borrower decided to accept the proceeds in monthly installments, he or she would receive approximately 0 each month. This means that the borrower would receive the full ,000 after approximately 13.6 years. However, because this would be a lifetime payment, the borrower could end up receiving much more over the life of the loan, which is why some seniors opt for monthly payments instead of accepting a lump sum. Of course, that is assuming that the private did not need to accept a lump sum in order to repay an outstanding forward mortgage balance.

Whether seniors select to receive their loan proceeds in a lump sum, monthly installments or as line of credit, the added earnings can be a huge help. These benefits are why so many seniors want to know what is a reverse mortgage.

What Is a Reverse Mortgage? What These Loans Do Not Do

To understand what is a reverse mortgage, seniors should also understand exactly what these loans do not do. First, loan proceeds do not impact group security or Medicare benefits. Supplemental security earnings and Medicaid benefits might be affected, which should be discussed prior to accepting the loan. Also, since loan proceeds are not assessable income, seniors are not anticipated to pay earnings taxes on their payout.

Seniors should also know that getting a reverse mortgage will not sway their status as homeowner. While asking what is a reverse mortgage, many seniors want to know whether they will be required to hand over the title to their home. Fortunately, lenders do not force seniors to give up ownership. However, because seniors support the title and possession over the home, they will be required to keep up with indispensable repairs, assurance and property taxes. As long as borrowers keep up with these expenses, they will be allowed to enjoy their tax-free proceeds for as long as they remain in their home.

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